COVID-19 and Force Majeure clauses - an essential checklist

With much of the world in lockdown and national economies tanking, supply chains are being stretched to the limits. Some parties are looking for relief from performing their obligations or even to exit a contract. Attention is focusing on the force majeure clause normally tucked away at the back of a contract. What are the steps you should be taking and what do you need to be thinking about?

  1. Check your legal system - what does the contract say about your choice of law: English? French? US? The precise answer to the legal problem will depend on this. This note is about English Law - other legal systems will have different laws and approaches.

  2. Identify your force majeure clause - not always so easy as it might sound.

    1. It might be called force majeure or something else (e.g. “Impossibility”)

    2. Other provisions on assumptions or dependencies might also be relevant

    3. There might be a Material Adverse Change clause as well

  3. Identify the carve-outs to force majeure - there could well be provisions to do with Business Continuity or Disaster Recovery which severely limit the effect of a force majeure clause.

  4. Work out what the clause covers.

    1. It might be a long list of individual events (acts of God, war, civil war, terrorist acts etc etc)

    2. It might be general - “beyond a party’s reasonable control”

    3. It might talk about “preventing” performance (a high standard) or “hindering” performance (easier to show) or some other standard

  5. Does the wording cover what has happened?

    1. If you have a long list of force majeure events, does it expressly include epidemic or pandemic? Is it an epidemic at the moment?

    2. Are the consequences “preventing” or “hindering” performance (or whatever words are used)?

  6. What are your surviving obligations? Many force majeure clauses do  not terminate the contract immediately, and you may well be expected to keep working to the extent possible and to mitigate the effects of the force majeure event.

  7. Work out what you have to do to claim force majeure: many clauses require some sort of notification. Recent case-law shows that the courts take a fairly literalistic approach to a notification requirement so you must comply with it exactly.

  8. Where you are required to keep working or mitigate the effects of a force majeure event, document your actions. You may have to prove it later. Check whether additional costs are claimable under the contract.

  9. Prepare for termination: many clauses allow one or other parties to terminate after a defined period. If the other side terminates, are you ready with an alternative supplier?

  10. Act fast if you receive a notice of force majeure. The contract may be part of a contractual chain and you may need to take action with subcontracts or contracts up the chain. Are all contracts in the chain back to back? Will you be exposed if a contract up the chain is terminated, but you have no equivalent right to terminate subcontracts?

  11. Be nice! While you must reserve your position and serve notice if necessary, the other party may be willing to negotiate a variation to the contract without going to law. Always take the trouble to investigate whether a commercially negotiated compromise is available - it may make it much easier (and cheaper) in the long run.

If you want to know how the English courts apply force majeure clauses, take a look here.

If you want to see a more detailed version of this checklist, take a look here

Remember always to take professional advice before proceeding - these types of clauses are all different, each contract is different, individual circumstances are all different.

Richard Stephens, LORS, 19 March 2020

  • Fraser Willcox

    Fraser Willcox

    Member Relations Manager
    T 020 7331 2057

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